Industry feels tremors

Government to seek delay in order's implementation

The nation's chief telephone regulator yesterday blasted a recent court decision that could open the long-distance market to regional local-service phone companies.

Federal Communications Commission Chairman William Kennard called the decision "unequivocally bad for the consumers of America."

On Wednesday, U.S. District Judge Joe Kendall, in Wichita Falls, Tex., ruled that the Telecommunications Act of 1996 unconstitutionally prevents the regional local-service companies, known as Baby Bells, from entering the $80 billion long-distance market.

While many experts doubt that the decision will stand, it has sent tremors through the telecommunications industry.

Under the 1996 act, Baby Bells can't offer long-distance in their territories until they open their own local markets. The ban was intended to open those markets. The prospect that this bar might be lifted has aroused concern among regulators and long-distance companies.

"The decision of the Texas court guts the incentives for the regional Bell operating companies to open their markets to competition," Kennard said at a press conference in Washington.

He said the government will ask Kendall on Monday to delay implementation of the ruling. "We want to move immediately to try to remedy this decision," Kennard said.

Analysts said the potential impact of Kendall's decision is enormous. "If it ultimately stands, which is a big question, it's huge. It turns the Telecommunications Act upside down," said Scott Cleland, a telecommunications analyst for the Legg Mason Precursor Group in Washington.

Cleland said the tight controls on the Baby Bells are "the cornerstone of the Telecommunications Act."

Not everyone is sorry to see that cornerstone chipped away. Jerry Hausman, a Massachusetts Institute of Technology economics professor who has consulted for the Baby Bells, said opening long-distance markets to the Bells would benefit the consumer.

L "If the Bell companies are allowed to provide long distance,

prices of long distance will come down, decreasing AT&T's profits," Hausman said. "If this decision is upheld, the most important consequence is that the long-distance costs of residential customers will fall 15 percent in one year."

He said he was unimpressed by Kennard's objections to the decision: "I'm extremely disturbed that the head of the FCC sounds like he's an employee of AT&T."

The issue of Baby Bell access to the long-distance market shifts to the appellate courts. Cleland said the issue will likely be decided at that level by the middle of the year, with a U.S. Supreme Court hearing sure to follow. "This issue isn't done until the Supreme Court rules," he said.

Cleland said Kendall's decision has a chance of surviving the appeals process. "It's much more of a toss-up than most people believe," he said. "Most people scoff at it and think it will be overturned. It's a much stronger case, not easily dismissed. There's a legitimate constitutional question."

That question, he said, is whether Congress singled out the Baby Bells in the Telecommunications Act without the benefit of a judicial trial.

Cleland said that, even before the appellate courts decide on this matter, some Baby Bells might rush into the long-distance market. "It's in their interest to do it," he said, "because then they can show irreparable harm if they're kept out."

SBC Communications Inc., the San Antonio-based Baby Bell that was one of the parties in the lawsuit, might soon make such a move in Oklahoma, with other companies doing the same elsewhere in the country, he said.

Bell Atlantic spokeswoman Shannon Fioravanti said the company doesn't intend to speed its efforts to provide long distance in Maryland as a result of the decision in Texas. Bell Atlantic plans to file this year for permission to offer long distance in Maryland.

Chris Landes, an analyst for TeleChoice Inc., a Verona, N.J., telecommunications consulting firm, said any aggressive moves by the Baby Bells won't occur overnight. "I don't believe that any one [Baby Bell] is fully prepared to enter into the long-distance market tomorrow," Landes said.

He said Kendall's decision might cause the long-distance giants to seek protection from the Baby Bells by merging with them. "This may ignite further consolidation," he said. "A merger is not out of the question."

According to Wall Street, the long-distance companies have good reason to worry. AT&T's stock price has fallen $3.81, or 6 percent, since Tuesday's close.